by Christine Lagat
NAIROBI, Aug. 1 (Xinhua) -- The Kenyan ministry of agriculture on Tuesday signed an agreement worth 3 million U.S. dollars with a local bank, Equity Bank to boost access to credit among smallholder farmers who contribute an estimated 70 percent of food production in the country.
Cabinet Secretary for Agriculture, Livestock and Fisheries, Willy Bett said the Agriculture Credit Guarantee Scheme agreement (ACGS) with Equity Bank will cushion smallholders from under-financing that hinders productivity.
"This new credit guarantee scheme will enable small scale farmers' access funds to cater for critical inputs like seeds, fertilizers and pesticides. We are exploring new financing models for smallholders to enhance sustainability of their enterprise," said Bett.
He revealed that both the ministry of agriculture and Equity Bank will share 40 and 60 percent of risk respectively under the new agreement in case a farmer defaults on repaying credit.
"Our partnership with Equity Bank will improve the creditworthiness of a sector that is considered risky to lend due to harsh climatic conditions, crop pests and diseases," Bett remarked.
He added the government has partnered with local financial institutions and multilateral lenders to promote access to affordable credit and insurance schemes for farmers and pastoralists grappling with negative impacts of climate change like recurrent droughts.
"Beyond extending credit, we have mobilized key players in the agriculture value chains to help farmers address climate related risks, storage and marketing challenges that erode their revenue base," said Bett.
Kenyan financial institutions have supported innovative models to boost access to credit among smallholder farmers in a bid to boost food security and rural incomes in the country.
The CEO, Equity Bank Group, James Mwangi said that adequate financing is key to transition from subsistence to commercially viable farming and transform rural livelihoods.
"There is need to develop appropriate lending models for farmers in order to enhance productivity and wealth generation in rural settings," said Mwangi.
He added that public private partnership is key to revolutionize the agriculture sector that contributes an estimated 24 percent to Kenya's GDP.